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How to work with bitcoin, How does Bitcoin work?

Let's explore each concept a bit closer. Then, both computers start talking to each other and your browser shows images, buttons, etc.


To understand how Bitcoin works, it's essential to figure out what's a decentralized network. In a decentralized network, the data is everywhere. If Google used a decentralized network, you would still be able to how to work with bitcoin the data, because it is everywhere, and not just in one place. This means that Google would never go offline! It converted radio messages into code that nobody could read.

To read it, you would need to convert back to the original message. To do that, you needed a key.

What is cryptocurrency?

It was possible through mathematical formulas! Bitcoin uses cryptography in the same way. Instead of converting radio messages, Bitcoin uses cryptography to convert transaction data.

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That is why Bitcoin is called a cryptocurrency. Knowing that takes you one step closer to understanding how does Bitcoin work.

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Bitcoin does this using the blockchain. Supply and Demand Last week, when John visited the bakery, only one cake was left.

How does Bitcoin work?

Four other people wanted it, too. This is the main concept of supply and demand: when something is limited, it has more value. The more people that want it, the more the price of it will go up. Bitcoin uses this same concept. The supply of Bitcoin is limited. Bitcoin is produced at a fixed rate, which will decrease over time — it halves every four years.

Bitcoin Transactions Explained

Bitcoin has a limit of 21 million coins; once there are 21 million Bitcoins, no more coins can be created. How many Bitcoins are there at the moment? Well, currently We've still got a long, long way to go before it reaches 21 million!

How Does BitCoin Work?

To really learn how Bitcoin works, we should move on to how the Bitcoin transactions work… How Do Transactions Happen? Now, let us see how these concepts work together. To record transactions, we need to put them in a database like an Excel sheet. This would normally be stored in one place in a centralized network.

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But because Bitcoin uses a decentralized network, the Bitcoin database is shared. This shared database is known as a distributed ledger and it is accessed using the blockchain.

To learn more about blockchain technology and understand what are Bitcoins from the blockchain perspective better, read my " Blockchain Explained " guide.

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The message would be then broadcasted to all the computers in the network. Can Someone Fake My Identity? When you create a Bitcoin wallet to store your Bitcoinyou receive a public key and a private key.

  1. Bitcoin and other cryptocurrencies run on the blockchain, a decentralized technology that creates a public ledger using a crowd-sourced system of computers.
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  3. This is a question often surrounded by confusion, so here's a quick explanation!
  4. How Does Bitcoin Mining Work?

Public keys and private keys are a set of long numbers and letters; they are like your username and password. Both are very important for truly understanding how does Bitcoin work. How to work with bitcoin need your public key if they want to send money to you.

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Because it is just a set of numbers and digits, nobody needs to know your name or email address, etc. This makes Bitcoin users anonymous! As for your private key, you should never let anyone see it.

On the blockchain, your private key is your identity. You use your private key to access your Bitcoin. If someone sees it, they can steal all your Bitcoin — so be very careful!

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So yes, technically, your identity can be faked. If someone gets your private key, they can use it to send Bitcoin from your wallet to their wallet. This is why you must keep your private key very, very safe.

Your real identity your name, address, etc. Can Someone Spend Bitcoin Twice?

Going down the rabbit hole

Bitcoin transactions are grouped together and stored in blocks. These blocks are linked back to one another in a series. This is why it is called a blockchain. Each transaction in the block has a public key written on it. If it is your Bitcoin, it will be your private key that is written on it.

Because each block is connected to the block before it, no Bitcoin can be spent twice.

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Let's understand how does Bitcoin work with some real-life examples.